A SUCCESSFUL YEAR Merck FY 2016 results - Stefan Oschmann, CEO Marcus Kuhnert, CFO - Merck Group

 
A SUCCESSFUL YEAR Merck FY 2016 results - Stefan Oschmann, CEO Marcus Kuhnert, CFO - Merck Group
A SUCCESSFUL YEAR
Merck FY 2016 results

Stefan Oschmann, CEO
Marcus Kuhnert, CFO

March 9, 2017
A SUCCESSFUL YEAR Merck FY 2016 results - Stefan Oschmann, CEO Marcus Kuhnert, CFO - Merck Group
Disclaimer

Cautionary Note Regarding Forward-Looking Statements and financial indicators
This communication may include “forward-looking statements.” Statements that include words such as “anticipate,” “expect,” “should,” “would,” “intend,” “plan,” “project,” “seek,”
“believe,” “will,” and other words of similar meaning in connection with future events or future operating or financial performance are often used to identify forward-looking statements. All
statements in this communication, other than those relating to historical information or current conditions, are forward-looking statements. We intend these forward-looking statements to
be covered by the safe harbor provisions for forward-looking statements in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to a number
of risks and uncertainties, many of which are beyond control of Merck KGaA, Darmstadt, Germany, which could cause actual results to differ materially from such statements.

Risks and uncertainties include, but are not limited to: the risks of more restrictive regulatory requirements regarding drug pricing, reimbursement and approval; the risk of stricter
regulations for the manufacture, testing and marketing of products; the risk of destabilization of political systems and the establishment of trade barriers; the risk of a changing marketing
environment for multiple sclerosis products in the European Union; the risk of greater competitive pressure due to biosimilars; the risks of research and development; the risks of
discontinuing development projects and regulatory approval of developed medicines; the risk of a temporary ban on products/production facilities or of non-registration of products due to
non-compliance with quality standards; the risk of an import ban on products to the United States due to an FDA warning letter; the risks of dependency on suppliers; risks due to product-
related crime and espionage; risks in relation to the use of financial instruments; liquidity risks; counterparty risks; market risks; risks of impairment on balance sheet items; risks from
pension obligations; risks from product-related and patent law disputes; risks from antitrust law proceedings; risks from drug pricing by the divested Generics Group; risks in human
resources; risks from e-crime and cyber attacks; risks due to failure of business-critical information technology applications or to failure of data center capacity; environmental and safety
risks; unanticipated contract or regulatory issues; a potential downgrade in the rating of the indebtedness of Merck KGaA, Darmstadt, Germany; downward pressure on the common stock
price of Merck KGaA, Darmstadt, Germany and its impact on goodwill impairment evaluations; the impact of future regulatory or legislative actions; and the risks and uncertainties detailed
by Sigma-Aldrich Corporation (“Sigma-Aldrich”) with respect to its business as described in its reports and documents filed with the U.S. Securities and Exchange Commission (the “SEC”).

The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included elsewhere,
including the Report on Risks and Opportunities Section of the most recent annual report and quarterly report of Merck KGaA, Darmstadt, Germany, and the Risk Factors section of Sigma-
Aldrich’s most recent reports on Form 10-K and Form 10-Q. Any forward-looking statements made in this communication are qualified in their entirety by these cautionary statements, and
there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or
effects on, us or our business or operations. Except to the extent required by applicable law, we undertake no obligation to update publicly or revise any forward-looking statement,
whether as a result of new information, future developments or otherwise.

This quarterly presentation contains certain financial indicators such as EBITDA pre exceptionals, net financial debt and earnings per share pre exceptionals, which are not defined by
International Financial Reporting Standards (IFRS). These financial indicators should not be taken into account in order to assess the performance of Merck in isolation or used as an
alternative to the financial indicators presented in the consolidated financial statements and determined in accordance with IFRS. The figures presented in this quarterly statement have
been rounded. This may lead to individual values not adding up to the totals presented.

2
A SUCCESSFUL YEAR Merck FY 2016 results - Stefan Oschmann, CEO Marcus Kuhnert, CFO - Merck Group
Agenda

    Executive summary

    Strategic review

    Financial overview

    Outlook and guidance

3
A SUCCESSFUL YEAR Merck FY 2016 results - Stefan Oschmann, CEO Marcus Kuhnert, CFO - Merck Group
EXECUTIVE SUMMARY
A SUCCESSFUL YEAR Merck FY 2016 results - Stefan Oschmann, CEO Marcus Kuhnert, CFO - Merck Group
Highlights 2016

                   Healthcare – solid commercial performance and first pipeline filings

    Execution on   Life Science – above-market growth amid seamless integration
      strategy

                   Performance Materials – four pillar strategy supports profitability and innovation

                   Organic growth across all regions and profitability expansion

    Delivery of    Delivery of targets: Net sales €15 bn, EBITDA pre €4.49 bn, EPS pre €6.21
    financials
                   Strong operating cash flow of €2.5 bn allows for significant deleveraging

5
A SUCCESSFUL YEAR Merck FY 2016 results - Stefan Oschmann, CEO Marcus Kuhnert, CFO - Merck Group
Strong financials and delivery of targets

     Net sales [€ m]                 EBITDA pre [€ m]                   EPS pre [€]
                          Guidance

                           
                                                         Guidance                     Guidance
                15,024

    12,845
                                                 4,490
                                                                                 6.21     
                                     3,630                          4.87

    FY 2015     FY 2016              FY 2015     FY 2016            FY 2015      FY 2016

6
A SUCCESSFUL YEAR Merck FY 2016 results - Stefan Oschmann, CEO Marcus Kuhnert, CFO - Merck Group
Organic growth in all regions

Regional breakdown of net sales [€ m]                                                                                              Regional organic development

                                                                          Europe        +1.7%                                      • Organic growth in Europe driven by
                                                                                         org.
                                                                                                                                     robust demand in Process Solutions

                                                        31%                                                                        • Strong U.S. development of Fertility
                                                                                                                                     franchise, Xalkori co-promotion and solid
                                                                                                                                     Process Solutions yield sound growth
North America       +5.3%
                     org.                              FY 2016                                                                     • Asia-Pacific shows slight organic growth
                                                                                                                                     driven by Healthcare and Life Science
                                                      Net sales:
                                                                                                                                     offsetting negative LC environment
                                                     €15,024 m                 31%
                                        26%
                                                                                                Asia-Pacific      +1.2%            • Good organic development in LatAm and
                                                                                                                   org.
                                                                                                                                     MEA driven by all relevant businesses,
                                                                                                                                     especially GM, CH and Applied Solutions
                                                         8%
                                                                 4%

                    Latin America          +8.9%                       Middle East & Africa           +5.7%
                                            org.                                                       org.

7      LC=Liquid Crystals; GM=General Medicine (includes CardioMetabolic Care & General Medicine and Others); CH=Consumer Health
A SUCCESSFUL YEAR Merck FY 2016 results - Stefan Oschmann, CEO Marcus Kuhnert, CFO - Merck Group
Sustainable dividend development

Dividend1 development 2011-2016                                                                                                               2016 dividend

                                                                                                                                              • Dividend of €1.20 per share
                                                                                                                                                proposed2 for 2016, reflecting
                                                                                                                                                19.3% of EPS pre
                                                                                                                 1.20
                                                                                                                                              • Dividend development in line with
                                                                                            1.05
                                                                       1.00                                                                     business performance and earnings
                                                  0.95
                                                                                                                                                progression
                             0.85
       0.75                                                                                                                                   • Dividend yield3 of 1.21%

                                                                                                                         2
       2011                  2012                 2013                 2014                 2015                 2016

     1Adjusted   for share split, which has been effective since June 30, 2014; 2Final decision subject to Annual General Meeting approval;
8    3Calculated   with 2016 year-end share price of 99.15€ per share
A SUCCESSFUL YEAR Merck FY 2016 results - Stefan Oschmann, CEO Marcus Kuhnert, CFO - Merck Group
STRATEGIC REVIEW
A SUCCESSFUL YEAR Merck FY 2016 results - Stefan Oschmann, CEO Marcus Kuhnert, CFO - Merck Group
Healthcare: Solid base business and first pipeline submissions

       Business performance                                                                 Pipeline
                                                 Sales and EBITDA pre margin

                                                                -1.1%
                                                             +4.6% organic
      Defending Rebif                                                             Cladribine tablets filed in Europe
                                                     €6.9 bn            €6.9 bn

      Leveraging strength in Fertility                                            Filing of avelumab for Merkel Cell
                                                                                    carcinoma in the U.S. and Europe
      General Medicine portfolio driven
       by growth markets                              28.9%              31.0%     Avelumab progresses with nine
                                                                                    Phase III studies and increasing
      Delivery on product repatriations
                                                                                    Investigator Sponsored Studies (ISS)
      Successful life-cycle-management
                                                                                   Progressing with three Phase II
                                                                                    studies for BTK-i (RA, SLE and MS)

                                                      2015               2016

10       Totals may not add up due to rounding
Life Science: Profitable growth amid Sigma integration

      Business performance                                                                   Integration
                                                 Sales and EBITDA pre margin

                                                               +68.6%
                                                             +6.3% organic
      Quality growth above the market                                               Organizational structure
                                                                         €5.7 bn
                                                                                      implemented
      All businesses contributing
                                                                                     Strong cultural fit
      Good performance of legacy
       Sigma business                                €3.4 bn
                                                                         29.2%       Faster implementation of cost
                                                                                      synergies in 2016 than planned
      Ongoing product innovation                     25.5%

                                                                                     Expecting additional growth
                                                                                      from top-line synergies

                                                      2015                   2016

11       Totals may not add up due to rounding
Performance Materials: Driving innovation despite a challenging display market

      Business performance                                                                  Innovation
                                                 Sales and EBITDA pre margin

                                                                -1.8%
                                                             -4.7% organic
      Successfully managed challenging                                              LC Windows – investment in
       market dynamics in Display Materials          €2.6 bn                          production facility
                                                                         €2.5 bn
      Record year for Pigments with                                                 European Frost & Sullivan Award for
       strong development of coatings                                                 innovative Meoxal & Xirallic pigments
       and cosmetic functionals                       44.3%              44.1%
                                                                                     License agreement with Nanoco –
      Above-market growth of Integrated                                              enhancing position in quantum
       Circuits fueled by technology trends                                           materials

      Further progress towards OLED
       leadership; opening of new
                                                      2015                   2016
       production facility

12       Totals may not add up due to rounding
FINANCIAL OVERVIEW
Life Science and Healthcare drive growth and profitability

FY 2016 YoY net sales                                                                            • Growth in Healthcare fueled by strong
                                                                                                   Fertility, GM as well as Xalkori
                                          Organic         Currency      Portfolio        Total
                                                                                                 • Strong organic growth in Life Science driven
Healthcare                                        4.6%       -4.6%          -1.1%       -1.1%
                                                                                                   by all businesses, esp. Process Solutions
Life Science                                      6.3%       -0.8%         63.1%       68.6%     • Organic decline in Performance Materials
                                                                                                   reflects destocking in display supply chain
Performance Materials                         -4.7%           0.2%          2.7%        -1.8%
                                                                                                 • Portfolio effects reflect Sigma and Kuvan
Merck Group                                       3.2%       -2.6%         16.4%       17.0%
                                                                                                 • HC benefits from solid organic growth
FY 2016 YoY EBITDA pre contributors [€ m]                                                          and end of Rebif commission expenses,
                                                                                                   outweighing higher R&D costs
                                             +796            -26          -36         4,490      • Sigma, strong organic growth and positive
     3,630             +126
                                                                                                   business mix drive Life Science
                                                                                                 • Performance Materials slightly lower
                                                                                                   due to Liquid Crystals sales decline
                                                                                                 • Corporate EBITDA pre contains hedging
     FY 2015          Healthcare           Life Science   Performance   Corporate &   FY 2016
                                                           Materials       Other
                                                                                                   and investments in corporate initiatives
14        Totals may not add up due to rounding
FY 2016: Overview

Key figures                                                               Comments
 [€m]                                  FY 2015        FY 2016        Δ
                                                                          • EBITDA pre & margin increase driven
Net sales                                12,845        15,024     17.0%     by Sigma, organic performance and
                                                                            end of Rebif commission expenses
EBITDA pre                                3,630         4,490     23.7%
                                                                          • EPS pre additionally supported by
     Margin (in % of net sales)          28.3%          29.9%
                                                                            improved financial result
EPS pre                                    4.87           6.21    27.5%
                                                                          • Healthy operating cash flow driven by
                                                                            business performance and Sigma
Operating cash flow                       2,195          2,518    14.7%
                                                                          • Net financial debt reflects strong cash
                                                                            generation capabilities and focus on
 [€m]                             Dec. 31, 2015   Dec. 31, 2016      Δ
                                                                            deleveraging
Net financial debt                       12,654        11,513     -9.0%
                                                                          • Working capital increase due to higher
Working capital                           3,438          3,486    1.4%      business activity and FX

Employees                                49,613        50,414     1.6%

15
Reported figures reflect solid business performance and Kuvan divestment

Reported results                                                            Comments
 [€m]                                           FY 2015   FY 2016      Δ
                                                                            • EBIT reflects increased EBITDA pre
EBIT                                              1,843     2,481   34.6%     and Kuvan disposal gain amid
                                                                              integration costs and D&A from Sigma
Financial result                                   -357      -326   -8.5%
                                                                            • Financial result improvement driven
Profit before tax                                 1,487     2,154   44.9%     by lower hedging costs; LY included
                                                                              costs for early Sigma bond redemption
Income tax                                         -368      -521   41.7%
                                                                            • Effective tax rate within guidance
Effective tax rate (%)                           24.8%     24.2%              range of ~23% to 25%

Net income                                        1,115     1,629   46.1%

EPS (€)                                            2.56      3.75   46.5%

16      Totals may not add up due to rounding
Healthcare: Solid organic growth and pick-up of pipeline investments

Healthcare P&L                                                                  Comments
 [€m]                                               Q4 2015           Q4 2016   • Rebif stable, volume erosion in EU due to competition is outweighed by
                                                                                  U.S. pricing and higher U.S. year-end demand due to pharmacy stocking
Net sales                                               1,737           1,766
                                                                                • Moderate organic decline of Erbitux driven by mandatory EU price cuts
Marketing and selling                                    -728            -709     and competition offsetting volume growth in China and Brazil
Administration                                            -64             -68   • Fertility portfolio remains strong, especially in U.S. and China, despite
Research and development                                 -283            -418     softer Gonal-f sales
EBIT                                                      213             279   • Marketing & selling reflect end of commission expenses for Rebif
                                                                                  (U.S.) partially offset by year-end investments in launch preparations
EBITDA                                                    522             478
                                                                                • R&D spend pick-up reflects progress of key pipeline projects
EBITDA pre                                                524             497
                                                                                  (avelumab, TGF-beta, BTK-i); low base last year
     Margin (in % of net sales)                         30.2%          28.2%
                                                                                • Lower EBITDA pre and margin due to higher R&D costs

Net sales bridge                                                                Q4 2016 share of group net sales
        €1,737m             4.2%              -1.0%        -1.5%      €1,766m

                                                                                                                  46%
                                                                                                                                  Healthcare

         Q4 2015           Organic           Currency     Portfolio   Q4 2016

17          Totals may not add up due to rounding
Life Science: Record sales quarter amid tough comparables

Life Science P&L                                                                  Comments
 [€m]                                                Q4 2015          Q4 2016     • Process Solutions growth driven by single-use products and services
                                                                                    business, however some customer orders delayed
Net sales                                               1,085           1,441
                                                         -324             -458    • Good demand from EU and U.S. pharma for biomonitoring yields
Marketing and selling
                                                                                    solid organic growth of Applied Solutions
Administration                                            -63              -71
                                                                                  • Research Solutions shows slight organic growth – growth in Europe and
Research and development                                  -59              -70
                                                                                    Asia is almost offset by lower demand in the U.S.
EBIT                                                       34                70
                                                                                  • Absolute costs higher due to Sigma and investments in Process
EBITDA                                                    161              352      Solutions field force
EBITDA pre                                                271             419     • Strong profitability reflects Sigma, business mix & synergy ramp-up
     Margin (in % of net sales)                         25.0%          29.1%

Net sales bridge                                                                  Q4 2016 share of group net sales
                                                          28.8%       €1,441 m
       €1,085 m             3.7%              0.3%

                                                                                                                  38%             Life Science

         Q4 2015           Organic           Currency     Portfolio    Q4 2016

18          Totals may not add up due to rounding
Performance Materials: Resilient profitability despite tougher LC environment

Performance Materials P&L                                                        Comments
 [€m]                                               Q4 2015           Q4 2016    • 2016 display industry destocking still muting Liquid Crystals amid first signs
                                                                                   of a normalization of market shares
Net sales                                                 642              623
                                                          -54              -57   • Innovative UB-FFS technology with record quarter, SA-VA launch in H2 2017
Marketing and selling
Administration                                            -15              -16   • Strong growth of Integrated Circuit Materials driven by all major
                                                                                   material classes, esp. strong dielectrics demand for complex structures
Research and development                                  -52              -56
                                                                                 • Solid growth of Pigments & Functionals due to demand for automotive
EBIT                                                      193              210
                                                                                   coating pigments and highly differentiated functional materials
EBITDA                                                    257              269
                                                                                 • Resiliently strong profitability reflects leading market position in four
EBITDA pre                                                263             278      high-margin businesses
     Margin (in % of net sales)                         40.9%          44.6%

Net sales bridge                                                                 Q4 2016 share of group net sales

        €642 m             -5.9%             +1.4%        +1.5%       €623 m

                                                                                                                      16%            Performance
                                                                                                                                     Materials
         Q4 2015           Organic           Currency     Portfolio    Q4 2016

19          Totals may not add up due to rounding
Balance sheet – focus on rapid deleveraging
                                                        Assets [€ bn]                                                          Liabilities [€ bn]
                                                      38.1                         38.3                                     38.3            38.1
                                                                                      1.1
Cash & marketable securities                             1.1
                                                         2.7                          2.9
                      Receivables                        2.6                          2.6
                                                                                                                             14.1            12.9        Net equity
                      Inventories

                                                                                     25.0
             Intangible assets                          25.4
                                                                                                                             12.6            13.7        Financial debt

                                                                                                                              2.0             1.9        Payables
                                                                                                                              2.3             1.8
Property, plant & equipment                                                                                                                              Provisions for pensions
                                                         4.0                          4.2
                                                                                                                              7.2             7.8        Other liabilities
                    Other assets                         2.2                          2.5

                                                 Dec. 31, 2015                Dec. 31, 2016                              Dec. 31, 2016   Dec. 31, 2015

    • Ongoing amortization of Sigma-related intangible assets                                               • Decline in interest rates drives increase in pension provisions
    • Significant reduction of financial debt                                                               • Net equity increase reflects net income and FX

           Previous year figures adjusted after finalization of purchase price allocation of Sigma-Aldrich acquisition
   20      Totals may not add up due to rounding
High EBITDA pre drives strong operating cash flow

Q4 2016 – cash flow statement                                                  Cash flow drivers
 [€m]                                           Q4 2015    Q4 2016        Δ
                                                                               • D&A increases due to Sigma, LY contains
Profit after tax                                    127       265       138      evofosfamide impairment

D&A                                                 505       548        43    • Changes in provisions last year mainly
                                                                                 reflect provision build-up for evofosfamide
Changes in provisions                               183         -9     -192
                                                                               • Investing cash flow reflects capex and
Changes in other assets/liabilities                -289       -191       98      Biocontrol; LY contains Sigma purchase
                                                                               • Capex higher due to HQ, Sigma and
Other operating activities                            -5       -17      -12
                                                                                 investments in China
Changes in net working capital                      196       191         -5   • Financing cash flow reflects repayment of
                                                    718       787        69
                                                                                 debt; commercial paper issuance LY
Operating cash flow

Investing cash flow                              -14,606      -450   -14,156

 thereof Capex on PPE                              -217       -260      -43

Financing cash flow                               2,833       -277    -3,110

21      Totals may not add up due to rounding
OUTLOOK AND GUIDANCE
Qualitative Merck full-year 2017 guidance

          Net sales:                                       Slight to moderate organic growth

          EBITDA pre:                                      About stable*

       EBITDA pre growth drivers                                                  EBITDA pre growth burdens

     • Organic net sales growth with all 3 businesses contributing              • R&D costs increase 2017 in Healthcare: ongoing progress
                                                                                  of pipeline and Vertex in-licensing
     • Sigma-Aldrich incremental cost and revenue synergies
       of ~+€80m YoY                                                            • Healthcare margins negatively impacted by product mix

     • Rebif U.S. price increase as of January 2017                             • Fertility growth less fueled by favorable competitive
                                                                                  situation in U.S.
     • Avonex royalty income for additional 6 months in 2017
                                                                                • Elimination of 2016 one-time effects (disposal gain Q2,
                                                                                  reversal R&D termination provisions) ~-€90m YoY
     • Swap of royalty & license income stream with
       net benefit of mid to high double-digit €m

23       *Defined   as low positive or low negative % variation
2017 business sector guidance

             Healthcare                                                                         Performance
                                                      Life Science
                                                                                                 Materials
               Net sales                                  Net sales                                Net sales
 • Slight organic growth                     • Organic growth slightly above         • Slight organic growth
 • Ongoing organic Rebif decline               market; driven by Process Solutions   • Volume increases in all businesses
 • Other franchises growing; Glucophage      • First contribution from top-line      • Continuation of slight LC market share
   repatriation in China supportive            synergies                               normalization cannot be ruled out

              EBITDA pre                                 EBITDA pre                              EBITDA pre
 • YoY % decline in the high single digits   • % YoY growth in the high single       • Slight increase YoY
 • Higher R&D investments, mix effects         digits to low teens
   and 2016 positive one-time effects        • Sigma synergies and organic growth
   mitigated by higher royalty income          contributing

24
APPENDIX
Additional financial guidance 2017

Further financial details

Corporate & Other EBITDA pre            ~ -€350 – -380m

Interest result                        ~ -€250 – -260 m

Effective tax rate                        ~ 23% to 25%

Capex on PPE                             ~ €850 – 900 m

                                  2017 hedge ratio ~50%
Hedging/USD assumption         at EUR/USD ~ 1.11 to 1.12

2017 Ø EUR/USD assumption                  ~ 1.06 – 1.10

27
Strong focus on cash generation to ensure swift deleveraging

 Net financial debt* and leverage development                                              Focus on deleveraging
[Net financial debt/
EBITDA pre]
                                                                                           • Commitment to swift deleveraging to
  4x                                                                                         ensure a strong investment grade
                                                                                             credit rating and financial flexibility
                                                                                           • Strong cash flow will be used to drive
  3x              3.5x                                                                       down leverage to expected
                                                                                             €500 m)
  2x                                                                                         ruled out for the next two years
                                                                                             (or financed by divestments)
Well-balanced maturity profile reflects capital market transactions
related to Sigma-Aldrich

Maturity profile as of Dec. 31, 2016                                    2.4%
                                                                        4.5%

     Coupon
                                                                                                    2.95%
[€ m/US $]                                                              750                        1.375%                                    3.25%

       L+35bps
       E+23bps                                          4.25%                        2.625%
                                                        0.75%                                     1,000
        250                                             70                                                                                   1,600
                                                                       1,350                                                        3.375%
                                    1.7%
                                                                                     1,000
        700                                             800
                                    400                                                             550                              500

        2017                       2018                 2019            2020         2021          2022            2023             2024     2025

                                            EUR bonds           USD bonds [in US$]   Private placements     Hybrids (first call dates)*

                Financing structure enables flexible and swift deleveraging

29            *No   decision on call rights taken yet
Seamless Sigma integration and organic growth drive EBITDA pre

Q4 2016 YoY net sales                                                                            • Solid organic growth of Healthcare driven by
                                                                                                   strong Fertility, Xalkori commissions and
                                          Organic         Currency      Portfolio        Total
                                                                                                   stable Rebif sales, offsetting softer Erbitux
Healthcare                                        4.2%       -1.0%          -1.5%        1.7%
                                                                                                 • Life Science organic growth reflects phasing
                                                                                                   of larger orders in Process Solutions
Life Science                                      3.7%        0.3%         28.8%       32.8%
                                                                                                 • LC market share normalization impacts PM
Performance Materials                         -5.9%           1.4%          1.5%        -3.0%    • Portfolio reflects Sigma and Kuvan

Merck Group                                       2.2%       -0.1%          8.5%       10.6%

                                                                                                 • Healthcare reflects higher R&D and M&S
Q4 YoY EBITDA pre contributors [€ m]                                                               costs offsetting end of Rebif commissions,
                                                                                                   organic growth and higher royalty income
                                             +148            +15           +5         1,075
      933                -26
                                                                                                 • LS driven by Sigma portfolio effect,
                                                                                                   moderate organic growth and synergies
                                                                                                 • Performance Materials slightly higher, but
                                                                                                   versus weak comparables
     Q4 2015          Healthcare           Life Science   Performance   Corporate &   Q4 2016
                                                           Materials    Other (CO)

30        Totals may not add up due to rounding
Q4 2016: Overview

Key figures                                                               Comments
 [€m]                                  Q4 2015        Q4 2016        Δ
                                                                          • EBITDA pre increase driven by Sigma,
Net sales                                 3,464          3,830    10.6%     end of Rebif commission expenses and
                                                                            higher royalties, offsetting higher R&D
EBITDA pre                                 933          1,075     15.1%
                                                                          • EPS pre up due to EBITDA pre increase
     Margin (in % of net sales)          26.9%          28.1%
                                                                            and improved financial result
EPS pre                                    1.13           1.43    26.5%
                                                                          • Strong operating cash flow from
                                                                            EBITDA pre progression and improved
Operating cash flow                        718            787     9.6%
                                                                            working capital management in Q4
                                                                          • Net financial debt reduction reflects
 [€m]                             Dec. 31, 2015   Dec. 31, 2016      Δ
                                                                            strong focus on deleveraging
Net financial debt                       12,654        11,513     -9.0%
                                                                          • Working capital increase due to higher
Working capital                           3,438          3,486    1.4%      business activity and FX

Employees                                49,613        50,414     1.6%

31
Reported figures reflect Sigma acquisition

Reported results                                                             Comments
 [€m]                                           Q4 2015   Q4 2016       Δ
                                                                             • EBIT reflects increased EBITDA pre
EBIT                                                298       405   36.0%      amid integration costs and Sigma D&A

Financial result                                   -134       -70   -47.8%   • Financial result contains lower Sigma
                                                                               financing costs; LY included charges
Profit before tax                                   164       335   104.3%     for Sigma bond repayment and LTIP
                                                                             • Improved effective tax rate due to
Income tax                                          -42       -70   65.6%
                                                                               higher profits in low tax jurisdictions
Effective tax rate (%)                            25.9%    21.0%             • Guidance range of ~23% to 25%
                                                                               confirmed for 2017
Net income                                          126       269   113.8%

EPS (€)                                            0.29      0.62   113.8%

32      Totals may not add up due to rounding
Healthcare: Good organic growth and product mix drive profitability

Healthcare P&L                                                                    Comments
 [€m]                                                 FY 2015          FY 2016    • Rebif still impacted by ramp-up of competition in Europe, while U.S.
                                                                                    pricing and PDP* in Brazil support performance
Net sales                                               6,934            6,855
                                                                                  • Erbitux shows slight organic growth as volume expansion in emerging
Marketing and selling                                   -2,801          -2,587
                                                                                    markets more than offset mandatory price cuts and competition in EU
Administration                                           -259              -270
                                                                                  • Strong Fertility driven by favorable competitive situation in the U.S.
Research and development                                -1,310          -1,496
                                                                                  • Marketing & selling reflects end of commission expenses for Rebif (U.S.)
EBIT                                                    1,097            1,593      partially offset by reinvestments in sales force & launch preparations
EBITDA                                                  1,970            2,425    • R&D spend increases as pipeline development progresses
EBITDA pre                                               2,002           2,128    • EBIT reflects Kuvan disposal gain of €330m in 2016
     Margin (in % of net sales)                         28.9%           31.0%     • Profitability improves due to solid organic growth and end of Rebif
                                                                                    commissions
Net sales bridge                                                                  FY 2016 share of group net sales

        €6,934 m            4.6%              -4.6%        -1.1%       €6,855 m

                                                                                                                    45%
                                                                                                                                    Healthcare

         FY 2015           Organic           Currency      Portfolio    FY 2016
            *Productive Development Partnership

33          Totals may not add up due to rounding
Healthcare organic growth by franchise/product

Q4 2016 organic sales growth [%]                      FY 2016 organic sales growth [%]
by key product [€ m]                                  by key product [€ m]
                                            Organic                                                   Organic

                                      441                                                    1,741
                                             +1%                                                       -2%
                                      440                                                     1,798

                          222                                                    880
                                              -5%                                                      +1%
                           237                                                   899

     Consumer            214
                                             +6%
                                                       Consumer                 860                    +3%
      Health             207                            Health                   905

                        175                   -1%                              753
                                                                                                       +12%
                        177                                                   685

                  111                                                  431
                                             +8%                                                       +4%
                  105                                                   463

                 102                         -5%                       388
                                                                                                       -2%
                 108                                                    437

                 Q4 2016         Q4 2015                               FY 2016         FY 2015

34
Rebif: Relief in the U.S. – competitive ramp-up in Europe ongoing

 Rebif sales evolution                                                             Rebif performance

 North America                                                      Q4 drivers     • Rebif sales of €441 m in Q4 2016
[€ m]                                                                                reflect stable organic sales amid slight
                                                                    +11.4% org.
                                         Price                                       negative FX effects mainly from LatAm
 300
                    Price              increase

                                                            
                  increase                                                Price    • U.S. performance was positively
 225                                                        Trend                    influenced by year-end demand due to

                                                                     
                                                                          Volume
                                                                                     pharmacy inventory stocking
 150                                                                      FX
        Q4 2015   Q1 2016    Q2 2016   Q3 2016    Q4 2016
                                                                                   • Market share within interferons stable
                                                                                     due to high retention rates and long-
 Europe                                                                              term safety track record
                                                                    Q4 drivers
[€ m]                                                                              • U.S. pricing & market share stabilization
 180                                                                -15.9% org.      partially offset decline of interferon class
 160
                                                                                   • Ongoing volume decline in Europe due
 140                                                                      Price
                                                                                     to phased market entry of orals
 120
                                                                          Volume
 100
        Q4 2015   Q1 2016    Q2 2016   Q3 2016    Q4 2016

 35
Erbitux: A challenging market environment

Erbitux sales by region                                                                               Erbitux performance

                                                                                     -5.4% Q4 YoY     • Sales decrease to €222m due to
     [€ m]                                                                           organic growth     moderate organic decline and FX
     250
                                                                                                        headwinds mainly from LatAm

                                                                                         15.5%        • Europe organically lower in ongoing
     200
                                                                                                        tough environment (price & competition)
                                                                                         -0.1%        • Asia-Pacific shows strong volume growth
     150
                                                                                                        in China offset by softness in Japan
                                                                                         -8.2%        • Organic growth in LatAm reflects
     100                                                                                                growing demand especially in Brazil

                                                                                        -11.4%
      50

       0
             Q4 2015       Q1 2016        Q2 2016           Q3 2016        Q4 2016

                  Europe   Middle East & Africa     Asia-Pacific   Latin America

36
Solid organic growth in Fertility, General Medicine and Endocrinology

Sales evolution                                                                                            Q4 drivers
Fertility
[€ m]                                                                                                      • Fertility shows ongoing growth
300                                                                                                          especially in the U.S. and China
260                                                                                            Organic
220
                                                                                                           • Gonal-f flat as growth in the U.S. is
                                                                                              6.1% org.
180                                                                                                          offset by slight uptake of biosimilars in
            Q4 2015             Q1 2016             Q2 2016               Q3 2016   Q4 2016                  Europe and softer demand in MEA
Endocrinology                                                                                              • Sales jump in Endocrinology reflects
[€ m]                                                                                                        slight volume growth and larger release
120
                                                                                                             of accruals for rebates
                                                                                               Organic
100
                                                                                              19.9% org.   • GM organic sales growth driven by solid
 80
            Q4 2015             Q1 2016             Q2 2016               Q3 2016   Q4 2016
                                                                                                             developments in all growth markets;
                                                                                                             neg. FX from LatAM and China
General Medicine (GM)*
[€ m]                                                                                                      • Glucophage still impacted by phasing of
500                                                                                                          tenders especially in MEA
450                                                                                            Organic
400                                                                                           3.6% org.
350
            Q4 2015             Q1 2016             Q2 2016               Q3 2016   Q4 2016

37      *includes   “CardioMetabolic Care & General Medicine and Others
Merck pipeline
       Phase I                                                 Phase II                                                 Phase III                                              Registration
     Tepotinib – c-Met kinase inhibitor                       Tepotinib                                               Avelumab – Anti-PD-L1 mAb                               Cladribine4 Tablets –
     Solid tumors                                             c-Met kinase inhibitor                                  Non-small cell lung cancer   1L1                        Lymphocyte targeting agent
     M2698 – p70S6K & Akt inhibitor                           Non-small cell lung cancer                              Avelumab – Anti-PD-L1 mAb                               Relapsing-remitting multiple sclerosis
     Solid tumors                                             Tepotinib                                               Non-small cell lung cancer 2L2
     M3814 – DNA-PK inhibitor                                 c-Met kinase inhibitor                                  Avelumab – Anti-PD-L1 mAb                               Avelumab5 – Anti-PD-L1 mAb
     Solid tumors                                             Hepatocellular cancer                                                                                           Merkel cell carcinoma
                                                                                                                      Gastric cancer 1L1
     M9831 (VX-984) – DNA-PK inhibitor                                                                                Avelumab – Anti-PD-L1 mAb                               Avelumab6 – Anti-PD-L1 mAb
     Solid tumors                                             Avelumab – Anti-PD-L1 mAb                                                                                       Urothelial cancer 2L2
                                                                                                                      Gastric cancer 3L3
     Beigene-283 – BRAF inhibitor                             Merkel cell carcinoma 1L1
                                                                                                                      Avelumab – Anti-PD-L1 mAb
     Solid tumors
                                                                                                                      Urothelial cancer 1L1
     M7583 – BTK inhibitor                                    Sprifermin
     Hematological malignancies                                                                                       Avelumab – Anti-PD-L1 mAb
                                                              Fibroblast growth factor 18                             Ovarian cancer platinum resistant/refractory
     M662077       (VX-970) – ATR inhibitor                   Osteoarthritis
                                                                                                                                                                                     Neurodegenerative Diseases
     Solid tumors                                                                                                     Avelumab – Anti-PD-L1 mAb
                                                              Atacicept
                                                                                                                      Ovarian cancer   1L1                                           Oncology
     M4344 (VX-803) – ATR inhibitor                           Anti-Blys/anti-APRIL fusion protein
     Solid tumors                                             Systemic lupus erythematosus                            Avelumab - Anti-PD-L1 mAb
                                                                                                                      Renal cell cancer 1L1                                          Immunology
                                                              M2951
     Avelumab – Anti-PD-L1 mAb                                BTK inhibitor                                           Avelumab - Anti-PD-L1 mAb                                      Immuno-Oncology
     Solid tumors                                             Rheumatoid arthritis                                    Locally advanced head and neck cancer
                                                                                                                                                                                     Biosimilars
     Avelumab – Anti-PD-L1 mAb                                M2951
     Hematological malignancies                               BTK inhibitor                                           MSB11022
                                                              Systemic lupus erythematosus                            Proposed biosimilar of Adalimumab
     M9241 (NHS-IL12)                                                                                                 Chronic plaque psoriasis
     Cancer immunotherapy                                     Abituzumab
     Solid tumors                                             anti-CD 51 mAb
                                                              Systemic sclerosis with interstitial lung disease
     M7824 - Bifunctional immunotherapy
     Solid tumors
                                                                                                                  Pipeline as of March 1st, 2017
     M1095 (ALX-0761)                                                                                             Pipeline products are under clinical investigation and have not been proven to be safe and effective.
     Anti-IL-17 A/F nanobody                                                                                      There is no guarantee any product will be approved in the sought-after indication.
     Psoriasis

                 1 1stline treatment; 2 2nd line treatment; 3 3rd line treatment; 4 European Medicines Agency (EMA) accepted Merck’s Marketing Authorization Application (MAA) in July 2016;
                 5 EMA  accepted Merck’s MMA in July 2016 and the US Food and Drug Administration (FDA) has accepted for Priority Review the Biologics License Application (BLA);
                 6 FDA accepted for Priority Review the BLA; 7 Includes expansion cohorts in non small cell lung cancer, small cell lung cancer and triple negative breast cancer
38
Newsflow: Upcoming pipeline catalysts

                                                          MCC: Expected FDA/EMA decision                                    H1/H2 2017
              Avelumab
                                                          UC: Expected FDA decision                                         H2 2017

                                                                                                                            Subject to interaction
              Atacicept                                   Phase III decision
                                                                                                                            with authorities

        BTK inhibitor (RA)                                Phase II data readout                                             Q2 2017

                M7824                                     Phase I interim data                                              mid 2017
     (anti PD-L1 – TGF-beta trap)

         Cladribine tablets                               Expected EMA decision                                             Q3 2017

             Sprifermin                                   Phase II data readout                                             Q3 2017

39         Note: timelines are event-driven and may change; Acronyms: MCC = Merkel cell carcinoma, UC = Urothelial cancer
Life Science: Strong top-line growth and fast synergy realization

Life Science P&L                                                                   Comments
 [€m]                                                   FY 2015         FY 2016    • Double-digit growth of Process Solutions driven by increasing
                                                                                     production of large molecules across global and regional accounts
Net sales                                                 3,355           5,658
                                                         -1,038           -1,706   • Applied Solutions shows moderate organic growth, driven by bio-
Marketing and selling
                                                                                     monitoring products for pharma & demand for analytical testing
Administration                                             -151             -248
                                                                                   • Slight organic growth of Research Solutions due to solid demand
Research and development                                   -197             -260
                                                                                     for biology portfolio
EBIT                                                        301              556
                                                                                   • Cost base contains Sigma, but improves in relation to sales
EBITDA                                                      674           1,378
                                                                                   • Profitability jump reflects Sigma, business mix as well as uptake
EBITDA pre                                                 856            1,652      of synergies
     Margin (in % of net sales)                          25.5%           29.2%

Net sales bridge                                                                   FY 2016 share of group net sales
                                                            63.1%       €5,658 m
       €3,355 m             6.3%             -0.8 %

                                                                                                                    38%              Life Science

         FY 2015           Organic           Currency       Portfolio    FY 2016

40          Totals may not add up due to rounding
Performance Materials: Healthy profitability amid display supply chain destocking

Performance Materials P&L                                                           Comments
 [€m]                                                   FY 2015         FY 2016     • LC impacted by volume declines of mature TN-TFT and inventory
                                                                                      correction in supply chain linked with slight market share normalization
Net sales                                                 2,556           2,511
                                                           -208             -233    • OLED continues to grow on industry capacity expansion & investments
Marketing and selling
Administration                                              -63               -61   • Integrated Circuit Materials (ICM) shows good growth in all major
                                                                                      product categories driven by increasing complexity of chips
Research and development                                   -197             -213
                                                                                    • Pigments & Functionals post solid growth esp. due to decorative coatings
EBIT                                                        878              823
                                                                                    • Marketing & selling reflects contribution from Sigma’s SAFC Hitech
EBITDA                                                    1,120           1,077
                                                          1,132           1,106     • Healthy profitability due to leading market position with highly
EBITDA pre
                                                         44.3%           44.1%        differentiated products, despite destocking in display supply chain
     Margin (in % of net sales)

Net sales bridge                                                                    FY 2016 share of group net sales
        €2,556m            -4.7%               0.2%          2.7%       €2,511m

                                                                                                                        17%            Performance
                                                                                                                                       Materials
         FY 2015           Organic           Currency       Portfolio    FY 2016

41          Totals may not add up due to rounding
Healthy operating cash flow reflects strong business performance

FY 2016 – cash flow statement                                                Cash flow drivers
 [€m]                                           FY 2015   FY 2016       Δ    • Profit after tax includes gain from
Profit after tax                                  1,124    1,633      509      Kuvan divestment, which is neutralized
                                                                               in other operating activities
D&A                                               1,511    1,934      423
                                                                             • D&A increases mainly due to Sigma
Changes in provisions                               215       -51    -266
                                                                             • Changes in provisions mainly reflect
Changes in other assets/liabilities                -636     -587       49      provision for evofosfamide in 2015
                                                                             • Investing cash flow contains increased
Other operating activities                          -11     -437      -426
                                                                               Capex & BioControl; LY is mainly Sigma
Changes in net working capital                       -8       26       34      purchase

                                                  2,195    2,518      323
                                                                             • Financing cash flow reflects repayments
Operating cash flow
                                                                               of Sigma-related debt; LY contains €
Investing cash flow                             -11,936     -503    11,433     and US$ bond issuances

 thereof Capex on PPE                              -514     -716      -202

Financing cash flow                               7,164    -1,908   -9,072

42      Totals may not add up due to rounding
Exceptionals in Q4 2016

Exceptionals in EBIT

 [€m]                                            Q4 2015                      Q4 2016
                                          Exceptionals   thereof D&A   Exceptionals   thereof D&A

Healthcare                                      90            89             20             0

Life Science                                    111            1             93            27

Performance Materials                            6             0             25            16

Corporate & Other                               13             0             27             1

Total                                           220           89            165            44

43      Totals may not add up due to rounding
Exceptionals in FY 2016

Exceptionals in EBIT

 [€m]                                             FY 2015                     FY 2016
                                          Exceptionals   thereof D&A   Exceptionals   thereof D&A

Healthcare                                      122           90           -225            71

Life Science                                    182            1            301            27

Performance Materials                            12            0             46            16

Corporate & Other                                51            1             69             1

Total                                           367           92            191           115

44      Totals may not add up due to rounding
Financial calendar

        Date                   Event
April 28, 2017       Annual General Meeting

May 18, 2017         Q1 2017 Earnings release

August 3, 2017       Q2 2017 Earnings release

November 9, 2017     Q3 2017 Earnings release

45
CONSTANTIN FEST                  SVENJA BUNDSCHUH                  ALESSANDRA HEINZ

Head of Investor Relations       Assistant Investor Relations      Assistant Investor Relations
+49 6151 72-5271                 +49 6151 72-3744                  +49 6151 72-3321
constantin.fest@merckgroup.com   svenja.bundschuh@merckgroup.com   alessandra.heinz@merckgroup.com

ANNETT WEBER                     NILS VON BOTH

                                                                            EMAIL: investor.relations@merckgroup.com
                                                                                WEB: www.investors.merck.de
Institutional Investors /        Institutional Investors /                        FAX: +49 6151 72-913321
Analysts                         Analysts
+49 6151 72-63723                +49 6151 72-7434
annett.weber@merckgroup.com      nils.von.both@merckgroup.com

EVA STERZEL                      OLLIVER LETTAU

Retail Investors / AGM /         Institutional Investors /
CMDs / IR Media                  Analysts
+49 6151 72-5355                 +49 6151 72-34409
eva.sterzel@merckgroup.com       olliver.lettau@merckgroup.com
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